Insurance Equalisation II

Table of Contents

Risk Equalisation

The Health Insurance (Amendment Act) 2007 provides that a risk equalisation scheme is to apply to registered health insurance providers and providers that have ceased to be registered providers. The former three-year exemption from risk equalisation for new entrants to the market is repealed,

The Health Insurance (Miscellaneous Provisions)Act 2009 followed the Supreme Court judgment that found the risk equalisation scheme to be outside the powers of the Authority under the legislation. The result was that the market was vulnerable to different prices for persons in different risk categories.

This was perceived to fail to support intergenerational solidarity. Insurers were incentivised to design products attracted only to persons with healthier lives, which was perceived to undermine solidarity and the protection of the common good.

The legislation reaffirmed the objectives of the Health Insurance Acts, including ensuring access to medical insurance coverage for all consumers without differentiation in respect of age or health status, enhancing intergenerational solidarity, community-rated health insurance and related measures.

Community Rating

The principal objective of the Minister and the Health Insurance Authority is to ensure, in the interests of the common good, that access to health insurance coverage is available to all with no differentiation based on age or health status. This does not affect the operation of discounts allowed below or the capacity to apply late entry loading. Insurers may not engage in practices or agreements against these principal objectives.

Provision is made to ensure community-rated health insurance contracts are available to all persons without differentiation irrespective of age or health status other than in limited circumstances that relate principally to children, members of restricted membership providers, or where loading would apply under lifetime community rating. Community ratings are measures in whole or in part which seek to achieve the principal objective mentioned above.

There is provision for an application of a lifetime community rating and late entry loadings on persons who do not take out cover until later in life. when their claim cost would be expected to be at a higher level such that they are not contributing to the intergenerational solidarity to the same extent.

There is provision for reduction of the age at which later entry loadings can be applied from 35 to 30. Loadings can apply on renewal of a contract to which the loading would have previously applied.

Insurer Obligations

Insurers are to submit new forms of contracts to the Health Insurance Authority at least twenty working days before offering them to customers. The Authority is to establish a register of health insurance contracts. The register is to be available for inspection free of charge and is to be maintained online.

Insurers are obliged to return information to the Authority every six months. The returns are to facilitate consideration regarding the level at which the duty and reliefs provided for below are to be set. Prior to that, insurers were obliged to make returns of data under the risk equalisation scheme.

Once the Authority evaluates and assesses information returned, it is to submit a report to the Minister yearly or otherwise periodically, advising of matters which should be brought to his attention as a result of the evaluation and analysis undertaken. The Minister is to make recommendations to the Minister for Finance on the reports submitted. The information to be provided by insurers is to be specified by regulations.

The information from returns may be used in the calculation of age-related tax credits and the amount of the levy. The disclosure is limited to the necessary purposes of the Authority and Minister.

Consumer Advertising

The 2009 Act seeks to enhance the position of consumers in relation to information and advertising, where it is considered to be in the best interests of the consumer. The Minister, having consulted with the Authority, may oblige insurers by regulation to provide prescribed information when offering a health contract.

Similarly, certain information is to accompany advertisements where the Minister considers, having consulted with the Authority, that it is in the interest of the policyholders or potential policyholders.

After the legislation, new restricted membership providers are not registered. Accordingly, new restricted membership providers may not enter an offer of health insurance.

Enforcement

The legislation provides for enforcement notices. The Authority may undertake enforcement where it is of the opinion that the insurer is contravening provisions of the legislation or is likely to do so again.

The Authority may take a number of steps to rectify a contravention. It may apply to the High Court, if necessary, to require compliance.

The insurer may make an application to the High Court to cancel, confirm or vary an enforcement notice. There is a provision for expedited hearings under the court rules.

Tax Relief

There was a tax credit that is age-related with respect to private health insurance premiums paid between 1 January 2009 and 1 January 2012 for persons over 50. This is in addition to the income tax relief available with respect to medical insurance premiums under general provisions.

Where an employer pays medical insurance for premiums on behalf of an employee, the employer pays the premium net of 20 percent with tax relief on the premium. In order to recover the benefit, the employer must pay an amount equal to 20 per cent of the gross premium to the Revenue Commissioners.

The employer must pay over any benefits claimed by a reduction in the gross premium with respect to the 2009 age-related tax credit. The age-related tax credit was granted against income tax charged to the individual in the year of assessment. The relievable amount was the amount of medical insurance premium that qualifies for income tax relief at the standard rates. The amount which qualifies for relief at the standard rate is net of the above age-related tax credit.

There was an additional age-related tax credit in respect to medical insurance premiums paid to authorised insurers other than restricted providers under contracts for persons aged 50 years and over. It applied in the above period.

The tax credit was €200 for persons between 50 and 60 years, €500 for 60 and 70 years, €950 for 70 and 80 years, and €1,175 for persons over 80 years.

The age-related tax credit cannot exceed the amount of the payment made in respect of the insured person for that year. The tax credit is given through tax relief at source when the insurance is paid to the authorised insurer.

The premium paid is reduced by the amount of the age-related tax credit, giving relief to persons paying the premium. The authorised insurer is repaid the equivalent amount of age-related tax credit on submitting a claim to the Revenue Commissioners. Regulations cover the administrative aspects of the relief. There is provision for recovery of refunds made to authorise insurers where they are not entitled to them.

The Health Insurance (Amendment) Act 2013 introduced new ceilings for medical insurance premiums, qualifying for tax reliefs at €1,000 per adult and €500 per child. Community rating applies to the gross premium minus risk equalisation credits and excludes tax relief.

Levies

There was a levy payable under the stamp duty legislation. The levy was €160 for each adult life and €53 for each child life.

It is not imposed on restricted membership providers and outpatient GP products and plans. The original levy was payable for each year 2009, 2010 and 2011.

2012 Act Scheme

The Health Insurance (Amendment) Act 2012 risk equalisation scheme replaced the interim scheme of age-related tax credits on 1st January 2013. The purpose of the Health Insurance Acts ( set out above) is access to health insurance for consumers on the basis of no differentiation of age, sex, or health status is provided for.

The 2012 legislation broadened burden sharing for health services between insured persons by extending the current cost subsidy between the old and the young to include healthier and less healthy.

A further criterion is to be taken into account in achieving the principal object, namely the importance of discouraging registered providers from engaging in certain practices such as market segmentation, which may have the effect of offering coverage of healthier persons, including younger, over less healthy and older persons.

The Health Insurance Authority may make regulations to carry this function into effect.

The 2012 Act makes provisions to prevent variation of health insurance premiums by reference to health, risk status, age, sex or frequency of use.

Insurer Notification Obligations

New types of health insurance contracts and changes to existing contracts must be notified to the HIA. This may affect the applicable risk equalisation stamp duty provision. A notice is required when a registered provider wishes to offer a new product.

Subject to the 90 day period, changes in the material benefits to existing products other than premium charges would be permitted to take effect only after the following year. Certain changes are allowed notwithstanding this.

Non-advanced products can be changed insofar as there is no increase to the benefits payable in respect of private hospital accommodation in a private hospital. Advanced products can be changed to increase the benefits payable.

An insurer must maintain the price of a health insurance contract for 90 days. Changes to premium payable are allowed subject to 30 days’ notice, and the new price must be maintained for 90 days. Where a product is being maintained in the market for 90 days, it can be withdrawn.

Authority Decision

In carrying out its evaluation and analysis of data from health insurers, the Authority is to have regard to average insurance claim costs with respect to subgroups, including age, gender, and level of cover.

The Authority is to make recommendations to the Minister on the applicable rate of risk equalisation credit in respect to hospital bed utilisation and in respect to classes of insured persons based on age, sex, or type of insurance coverage. It is to have regard to

the principal objective of the legislation,
the aim of avoiding overcompensation of registered providers or former providers,
the aim of maintaining the sustainability of the market,
the aim of having fair and open competition in the health insurance market,
the aim of avoiding fund-sustaining surpluses or debts from year to year.

Risk Equalisation Credits

The risk equalisation credits under the scheme replaced tax credits available under the 2009-2012 scheme. The Minister proposes the rate for risk equalisation credits and makes recommendations to the Minister for Finance in relation to the rate of stamp duty to apply.

In considering the rates of risk equalisation credits, the Minister is to have regard to the principal objective, reports furnished to him, and the above aims. The Minister is to consult with the Minister for Finance before proposing rates to be given to effect in primary legislation. Recommendations are to be made to the Minister for Finance on the applicable stamp duty rates.

The legislation provides for repayment of overcompensation by insurers to the exchequer. It is repaid to the fund. The timeframe used for the overcompensation test is based on a three-year rolling period.

The HIA is to categorise each type of health insurance contract to allow for the appropriate equalisation credit and stamp duty payments. This applies in respect of advanced and non-advance types of contracts.

Regulations are to be made by the HIA and particulars are to be entered in the register of health insurance contracts. The Minister may make general regulations in relation to risk equalisation under the scheme.

2013 Act Equalisaiton Payment

An overcompensated registered provider must make a risk equalisation payment to the risk equalisation fund if it has a more than reasonable profit. The HIA carries out overcompensation tests on a three-year rolling basis. A reasonable profit is a return on equity not exceeding 12 percent on a rolling three-year basis using European Union framework for state aid.

An insurer is not deemed to have made a profit in excess of a reasonable profit if his returns exceed 12 per cent for a part, but not all, of the three-year period. The definition includes all of the registered providers and health insurance businesses in the State. Return on equity is the equivalent of using approved accounting standards for the return on equity of an insurer established under the Acts.

The accounting periods for stamp duty is under this scheme is quarterly.

2013 Act Determinit Credit

Each year, the Health Insurance Authority provides a report to the Minister for Health in September, recommending the risk equalisation credit rates and the stamp duty levies needed to fund them for the following year.

Under the system, health credits are paid to the insurance company for people over 60 to help to meet their higher claims costs.

The stamp duty for products providing ‘advanced cover’ is being increased by €5 to €449 per adult and by €2 to €150 per child.
The stamp duty for products providing ‘non-advanced cover’ will be reduced to €157 (-€20) per adult and €52 (-€7) per child.